Landeskreditbank Baden-Württemberg - L-Bank

accrual period is increased (or decreased) if the interest actually paid during an accrual period exceeds (or is less
than) the interest assumed to be paid during the accrual period pursuant to the foregoing rules.
In general, any other Variable Debt Security that qualifies as a variable rate debt instrument will be
converted into an equivalent fixed rate debt instrument for purposes of determining the amount and accrual of
original issue discount and qualified stated interest on the Variable Debt Security. The OID Regulations
generally require that such a Variable Debt Security be converted into an equivalent fixed rate debt instrument by
substituting any qualified floating rate or qualified inverse floating rate provided for under the terms of the
Variable Debt Security with a fixed rate equal to the value of the qualified floating rate or qualified inverse
floating rate, as the case may be, as of the Variable Debt Security’s issue date. Any objective rate (other than a
qualified inverse floating rate) provided for under the terms of the Variable Debt Security is converted into a
fixed rate that reflects the yield that is reasonably expected for the Variable Debt Security. In the case of a
Variable Debt Security that qualifies as a variable rate debt instrument and provides for stated interest at a fixed
rate in addition to either one or more qualified floating rates or a qualified inverse floating rate, the fixed rate is
initially converted into a qualified floating rate (or a qualified inverse floating rate, if the Variable Debt Security
provides for a qualified inverse floating rate). Under such circumstances, the qualified floating rate or qualified
inverse floating rate that replaces the fixed rate must be such that the fair market value of the Variable Debt
Security as of the Variable Debt Security’s issue date is approximately the same as the fair market value of an
otherwise identical debt instrument that provides for either the qualified floating rate or qualified inverse floating
rate rather than the fixed rate. Subsequent to converting the fixed rate into either a qualified floating rate or a
qualified inverse floating rate, the Variable Debt Security is then converted into an equivalent fixed rate debt
instrument in the manner described above.
Once the Variable Debt Security is converted into an equivalent fixed rate debt instrument pursuant to the
foregoing rules, the amount of original issue discount and qualified stated interest, if any, are determined for the
equivalent fixed rate debt instrument by applying the general original issue discount rules to the equivalent fixed
rate debt instrument and a U.S. Holder of the Variable Debt Security will account for such original issue discount
and qualified stated interest as if the U.S. Holder held the equivalent fixed rate debt instrument. In each accrual
period appropriate adjustments will be made to the amount of qualified stated interest or original issue discount
assumed to have been accrued or paid with respect to the equivalent fixed rate debt instrument in the event that
such amounts differ from the actual amount of interest accrued or paid on the Variable Debt Security during the
accrual period.
If a Variable Debt Security does not qualify as a variable rate debt instrument under the OID Regulations,
then the Variable Debt Security would be treated as a contingent payment debt obligation under applicable
Treasury regulations (the “CPDI Regulations”). The CPDI Regulations generally require a U.S. Holder of such
an instrument to include future contingent and noncontingent interest payments in income as such interest
accrues based upon a projected payment schedule. Moreover, in general, under the CPDI Regulations, any gain
recognized by a U.S. Holder on the sale, retirement or other disposition of a contingent payment debt instrument
will be treated as ordinary income and all or a portion of any loss realized could be treated as ordinary loss as
opposed to capital loss (depending upon the circumstances). The United States federal income tax treatment of
any Variable Debt Securities that are treated as contingent payment debt obligations will be more fully described
in the applicable prospectus supplement. Persons considering the purchase of Variable Debt Securities should
carefully examine the applicable prospectus supplement and should consult their tax advisors regarding the tax
consequences of holding and disposing of Variable Debt Securities.
Sale or other Disposition of a Debt Security. Except as discussed elsewhere in this summary, upon the sale,
retirement or other disposition of a Debt Security, a U.S. Holder generally will recognize taxable gain or loss in
an amount equal to the difference between the amount realized on the sale, retirement or other disposition (other
than amounts attributable to accrued and unpaid interest, including accrued original issue discount, that a Holder
has not already included in gross income, which will be taxable as ordinary interest income) and such U.S.
Holder’s adjusted tax basis in the Debt Security. A U.S. Holder’s adjusted tax basis in a Debt Security generally
72